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Fighting fraud and corruption: increasing the government’s powers of detection

On 30 March 2017, the Australian Parliament introduced the Crimes Legislation Amendment (Powers, Offences and Other Measures) Bill 2017 into the Legislative Assembly. The Bill aims to provide a range of amendments to improve and clarify Commonwealth criminal justice arrangements but importantly proposes amendments to increase the government’s ability to fight fraud and corruption. Being “compliance ready” when it comes to corruption will be more important than ever.

The new Bill, awaiting a Second Reading Debate in the Legislative Assembly during the next sitting, will amend, among other things, the Crimes Act 1914 (Cth) and the Australian Federal Police Act 1979 (Cth) to better clarify the functions of Australia’s corruption regulator, the Australian Federal Police (AFP) and enable greater cooperation with international organisations and non-government organisations. This signals a shift in focus for the Australian government towards bolstering anti-corruption measures.

What does the new Bill achieve?

Whenever the Australian government contracts with a third party, the potential for fraud and corruption exists. This can arise from things such as a third party submitting invoices for work not actually undertaken, improperly engaging with foreign customs officials or producing inferior goods to that contracted for. While the actual amount the government loses to external fraud likely exceeds by far the already considerable amount reported by the Australian government, the question remains: why are these losses not identified or recovered, and what can be done about it? Measures to detect, prevent and identify fraud and corruption, especially in government procurement and funding, are critical if we are to learn from embarrassing historical frauds, such as those committed under the home insulation scheme and the school buildings program.

Schedule 7 of the Bill seeks to improve the government’s arsenal. It seeks to directly tackle fraud and corruption by permitting the collection, use and disclosure of personal information to assist the AFP in the detection and investigation of corrupt or fraudulent behaviour by entities dealing with the Australian government. Minister for Justice Michael Keenan stressed that “the measures will assist Commonwealth bodies to stamp down on corrupt officials and those who are seeking to defraud the Commonwealth.” He also assures that safeguards would be in place to protect privacy by limiting information sharing to circumstances that are necessary for an integrity purpose.

The Explanatory Memorandum to the Bill discloses that a Privacy Impact Assessment has been conducted measuring the privacy impacts of Schedule 7 and ensuring that privacy risks have been considered and mitigated. The Explanatory Memorandum further discloses that Schedule 7 of the Bill will assist Commonwealth entities and wholly-owned companies to investigate and deal with fraud against the Commonwealth, seeking to recover some of the $1.2 billion in reported fraud against the Commonwealth from 2012 to 2015 (of which only $50 million was recovered according to the Australian Institute of Criminology). The Bill reduces the complexity of investigating or otherwise controlling fraud against the Commonwealth to help increase recoveries and prevent fraud and corruption occurring.

What does this mean for Australian businesses?

With the passing of this legislation, the spotlight on corruption in Australia will continue to intensify. In recent years, the Organisation for Economic Cooperation and Development (OECD) has been critical of Australia’s handling of foreign bribery matters, particularly while governments around the world are taking a tougher stance on bribery and corruption through anti-bribery legislation and actively prosecuting corporations and individuals who contravene these laws. Greater enforcement of the Foreign Corrupt Practices Act 1977 in the US and the Bribery Act 2010 in the UK has left many wondering why Australia’s corruption regulator has been slow to enforce its anti-corruption powers.

Organisations that operate internationally, or that contract with third parties who do so, are particularly vulnerable to these anti-corruption laws and need to consider now what further measures they need to take to avoid prosecution. In light of the proposed new Bill, this is particularly important for organisations contracting with government. The current penalties for individuals guilty of a corruption offence are up to 10 years imprisonment and/or a fine of up to $1.7 million. For corporations, penalties are significantly harsher, being the greatest of $17,000,000; three times the value of benefit obtained; or 10% of the company’s turnover in the 12 months prior to committing the offence.

What can you do?

To keep ahead of the game, organisations should review and update anti-corruption compliance policies, including provisions for anonymous reporting, hotlines and whistleblower policies. Organisations should consider:

developing programmes designed to encourage employees to report bribery and corruption issues internally rather than going to the press or regulator in the first instance, ensuring that such programmes include robust anti-retaliation provision;

whether it is appropriate to offer incentives to employees for appropriate internal reporting of potential violations and cooperation in any ensuing investigation;

implementing a comprehensive action plan that will allow immediate responses to whistleblower tips and ensure an expeditious resolution of any investigations;

conducting anti-bribery and anti-corruption training to all staff to ensure everyone is aware of what is allowed, particularly in the context of facilitation payments; and

offering regular training on the internal reporting policy and procedures so that employees know the process and the people involved.

Organisations that have effective policies, codes of conduct, compliance programmes and crisis management protocols will be in a stronger position to demonstrate compliance with anti-bribery and corruption laws.